Tuesday, November 25, 2008

How About First Comparing Today to Early 1980s?

A Google News search shows that the phrase "since the 1930s" has been used 6,223 times in the last month, and the phrase "since the Great Depression" has been used more than 14,000 times in the last month, and most of these news references are comparisons of today's economic and financial conditions to the 1930s and the Great Depression. In contrast, the phrase "since the 1980s" has been used only 1,588 times in the last month.

Here's one problem: By comparing today's economic conditions to the 1930s and the Great Depression, the news media has apparently skipped the terrible economic conditions of the early 1980s and gone all the way back 75 years to the 1930s, without a comparison to a more recent period like the early 1980s. Consider for example the following comparisons of key economic variables today to the peaks for those variable in the early 1980s (and see graph above):

Bottom Line: The U.S. economy will certainly continue to experience economic problems and recessionary conditions through the first half of 2009, but a comparison of some of today's key economic variables to the early 1980s suggests that we are not even yet anywhere close to the economic conditions of the early 1980s. For example, the prime rate was 5 times higher in 1980 (20.5%) compared to today (4%), inflation in 1980 was 4 times higher, unemployment was 4.3 percentage points higher, the 30-year mortgage rate was 3 times higher, and real gas prices were almost twice as expensive as today. So before we start talking about the "worst economy since the 1930s" couldn't we first use the early 1980s as a benchmark of how bad economic conditions can get during a more recent period?

Anonymous, You need to do some homework. The banking system in the 1980s was a terrible mess. Have you not heard of the S&L crisis? 1,200 banks went under. The insolvencies were so extensive that the S&L Deposit Insurance Corp went insolvent!

The federal government had to form a new agency just to own and later dispose of all the bad assets of the failed banks and S&Ls.

We seem to be headed in that direction again. But we are not quite there yet.

This data proves the current ecomomy is much worse than the 80's. Back then we had room to lower interest rates. Not so now. Current rates are low and the economy is still bad. It will get worse with rising unemployment and more bad debt.

Thanks for proving the current economy is more crippled since the depression.

Some of these figures are misleading, especially the gas prices. In the 80's it says it was $3.45 or so and in 2008 it says it was $1.86 or so. People please think for yourselves. The author doesn't mention that in the earlier part of this year (2008) gas prices where I live anyway (NYS) were as high as 5.00 per gallon.

Amazing that we cant see that like th 1980's the economy must be turned around with sound tax policy. That will enable investors and businessmen to plan for the future. We all know that there is money to be spent but everyone is waiting for the Obama promised tax increases on the "wealthy", for redistribution to the non producers. Knee jerk policy and stimulus reactions will work just like they did in the 1930's, just keep everyone guessing and holding their money.